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April 12, 2013

Hedge Fund Manager Paulson to Start Fund for Tax Reduction

‘It gives billionaires a bad name,’ one critic says

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Legendary hedge fund manager John Paulson, who made an estimated $15 billion for investors by shorting the real estate market before its 2008 crash, is starting a fund to help investors reduce their tax bill.

Tax reduction strategies have been a focus for Paulson of late, and he recently considered a move to Puerto Rico to lower his personal tax liability.

Bloomberg reports Paulson’s firm “invited prospective clients to an April 24 event at Paulson & Co.’s New York offices, where the 57-year-old founder will talk about the Paulson Partners Premium LP Fund, described as a risk-arbitrage fund for investors looking to mitigate income taxes."

The 75-minute presentation will include a 15-minute discussion of tax-deferred or tax-free investing in the fund, according to the news service, which cites a copy of the invitation.

But in an era of increasing debate over income inequality, Occupy Wall Street and higher taxes for the wealthy, some are critical of Paulson’s latest move.

“He seems to be more focused on avoiding income taxes than on generating returns for his investors,” Brad Alford, head of Atlanta-based Alpha Capital Management, who runs a mutual fund of funds that invests in hedge funds, told Bloomberg. “It gives billionaires a bad name.”

As the news service notes, in March Paulson had been exploring a move to Puerto Rico, where a new law would eliminate taxes on gains from the $9.5 billion he has invested in his own hedge funds. Four days later, his firm said he wouldn’t set up a permanent residence there.

Paulson’s Advantage Plus Fund has fallen by about 58% from the end of 2010 through March, meaning investors have paid no taxes on the fund in the last two years. All five of Paulson’s strategies began the year below their so-called high-water marks.